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Gold stock ETFs were having a respectable year in performance until the end of February. GDX, the largest gold mining ETF with $6.6 billion in assets, was still in single digit positive territory. Then the last week of February happened - Bernanke made comments shutting the door on QE3 and gold stocks began a major decline. Here's the graph showing the two largest gold ETFs, GDX and its small cap cousin GDXJ, on their downward slope.

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Simply put, gold stock ETFs have been on a steady downward path with seemingly no end in sight. As of Wednesday's close, all gold stock ETFs are now in negative territory for the year. Here's the performance grid from showing all U.S. listed gold stock ETFs.

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Physical gold ETFs, like GLD and IAU, are still up around 5.5% year to date. So is it time to be a contrarian in gold mining stocks? Have they fallen too far and too fast? Let's focus on the largest gold stock ETF, GDX.

GDX has had its share of volatility, which is to be expected from a leveraged play on gold. However most of that volatility has been fairly range bound to the 200 Day Moving Average over the last few years. Like physical gold, the 200 Day Moving Average has been a good way to determine valuation. So let's take a look at an annotated GDX chart I put together from

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This chart goes back to August of 2009. I have highlighted the points in GDX's history where it has violated the 200 Day Moving Average and as you can tell, these have been buying opportunities. Note however, the last circled decline which occurred in December 2011. Whereas the earlier declines were all at higher levels than the previous ones, the December 2011 was lower. Next note the current divergence from the 200 Day noted on the far right on the chart. It appears that GDX is likely setting a new low on this decline as well. To see it more clearly, look at the one year GDX chart below.

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By just a fractional amount, the current low has surpassed the December 2011 divergence. This trend is concerning. The current low would be the second divergence of the 200 Day that reaches a lower point. In fact it seems likely that this divergence will end up being a lot lower.

I believe that GDX has more downside in its future. Some might argue that this new low could be the base of a bull run but based on the macro trends in gold, I see this as a trap. Whether one embraces my bearish stance by selling GDX, shorting it or using the Direxion Daily Gold Miners Bear 3X ETF DUST, it seems to me there is more to lose as an early contrarian than a well positioned bear.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: GDX: Contrarian Opportunity Or Trap?